Jefferies ‘Hefty’ CEO Pay Is Credit Negative, Moody’s Says

By Laura Marcinek -
Feb 4, 2013

Jefferies Group Inc. (JEF)’s plan to pay
two executives $78 million of incentive compensation could
hurt the firm’s bondholders, Moody’s Investors Service said.

“While Jefferies has outperformed its peers, an excessive
focus on short-term compensation has been at the root of many
outsized trading, credit and litigation losses at investment
banks,” Moody’s said today in a report.

Jefferies said last week it would pay Chief Executive
Officer Richard Handler $58 million in 2012 and future pay,
according to a filing from the New York-based firm. Brian Friedman, 57, chairman of the firm’s executive committee, is set
to receive $53.3 million in 2012 and future compensation. Those
figures include $39 million for each executive in restricted
stock awards for the next three years, which was the focus of
the Moody’s report.

The relationship between short-term vesting periods for pay
and outsized trading losses have led regulators to require
investment bank boards to consider longer compensation terms,
lower payouts and more clawbacks, Moody’s said in the report.
Those guidelines have not been “substantially implemented” at
Jefferies, the ratings firm wrote.

‘Insensitive’ Board

Handler’s $19 million compensation package for fiscal 2012
jumped 36 percent from a year earlier after Jefferies’s shares
surged 48 percent during the 12 months ended Nov. 30. A “strong
execution track record” by Handler and Friedman has benefited
bondholders as the firm has avoided losses that have plagued
larger competitors, Moody’s wrote.

Jefferies gained 2 cents, or 0.1 percent, to $19.97 at
11:44 a.m. in New York. The shares have climbed 7.5 percent this
year.

Even though the awards are subject to three-year vesting,
risks can take longer than that to appear, Moody’s said.
Jefferies’s board may also be “insensitive” to the concerns of
regulators regarding compensation levels, the ratings firm
wrote. Jefferies’s pay plan for Handler is similar to an
incentive program enacted in 2010, which granted annual payouts
of restricted stock units at about $13 million for three years.

Jefferies’s compensation committee decided to pay Handler,
51, an $8.1 million bonus for 2012. He volunteered to lower that
figure to $5 million, according to the filing. Friedman also
offered for his bonus to be cut from $6.1 million to $3.75
million.

Richard Khaleel, a spokesman for Jefferies, declined to
comment on the report.